3 Solid Reasons To Put Off Retirement

The financial advantages of deferring Social Security payments
have long been noted. Benefits can be taken as early as age 62.
But for each year they are delayed up until age 70, benefits rise
substantially. Despite these higher lifetime payments, large
numbers of Americans begin taking Social Security when they turn
62.

It's clear that many workers take early benefits because of
health and job problems. The recession bore this out. Still,
experts have been puzzled about why so many people rush to take
early benefits. Research performed over the past few years has
concluded that it may just be because no one told people there
was a better alternative.

A straightforward brochure mailed to a test group of people, most
between ages 60 and 65, stressed the benefits of delaying
retirement. Researchers then followed up a year later and
compared people who had received the brochure with a control
group that had not. They found that many people in the test group
– especially women – had decided to keep working.

"Decisions about when to retire and when to claim benefits can
have large implications for well-being over many subsequent
years," said the study by Jeffrey B. Liebman of Harvard Kennedy
School and Erzo F.P. Luttmer of Dartmouth College. "Such
decisions also have elements of irreversibility that make it hard
to undo poor decisions."

Further, they said, "retirement-related decisions are very
challenging to get right." Social Security tax and benefit
provisions are complicated and may involve a series of
calculations that are not clear or easy to understand.

Their brochure emphasized three benefits of delaying retirement.
Here are edited excerpts that explain these benefits.

1. You may live longer than you
think. According to the National Center for Health
Statistics, out of all 65-year-olds in America today, about 1 in
4 will live to age 90. For the average 65-year-old couple living
in America today, you can double the odds that at least one will
live to age 90. With many people living into their 90s, savings
often need to last a long time after retirement.

2. Postponing your retirement typically means more money
for a more comfortable retirement.Working longer will
help you put away more money for retirement. If you work a few
more years, you'll not only add to your existing savings, but
you'll avoid spending the money you've already saved in the
meantime.

Social Security benefits generally go up the longer you wait to
claim them, up until age 70. For each year you postpone claiming,
your retired worker benefits increase by about 8 percent of the
amount you'd get at age 62. For instance, a worker who would get
$1,000 in monthly retired worker benefits if he claimed at age 62
could expect about $1,330 in benefits by claiming at age 66. But
if the worker postponed claiming until age 70, he could expect
about $1,760 in monthly benefits. In addition to the increase
from delayed claiming, working a few more years generally raises
your Social Security benefits because most people's benefits
depend on their work history.

3. It pays to work, even while you're receiving Social
Security benefits. Some people who claim benefits
at age 62 stop working between ages 62 and 66 because they fear
they will lose their benefits. In truth, if your benefits are
reduced from working, the money is not actually lost. Instead,
the reduction is returned to you later in the form of increased
benefits.

If you do claim before your full retirement age, your monthly
benefits will be reduced if you earn more than a certain
threshold amount per year. The threshold is now $15,120. Once you
reach your full retirement age, your benefits are never reduced,
no matter how much you earn.

If your benefits were ever lowered from working, they are
recalculated to a higher amount when you reach full retirement
age – meaning the total benefits you can expect to receive over
your lifetime are not really cut, even if they might be
temporarily reduced.

The financial advantages of deferring Social Security payments
have long been noted. Benefits can be taken as early as age 62.
But for each year they are delayed up until age 70, benefits rise
substantially. Despite these higher lifetime payments, large
numbers of Americans begin taking Social Security when they turn
62.

It's clear that many workers take early benefits because of
health and job problems. The recession bore this out. Still,
experts have been puzzled about why so many people rush to take
early benefits. Research performed over the past few years has
concluded that it may just be because no one told people there
was a better alternative.

A straightforward brochure mailed to a test group of people, most
between ages 60 and 65, stressed the benefits of delaying
retirement. Researchers then followed up a year later and
compared people who had received the brochure with a control
group that had not. They found that many people in the test group
– especially women – had decided to keep working.

"Decisions about when to retire and when to claim benefits can
have large implications for well-being over many subsequent
years," said the study by Jeffrey B. Liebman of Harvard Kennedy
School and Erzo F.P. Luttmer of Dartmouth College. "Such
decisions also have elements of irreversibility that make it hard
to undo poor decisions."

Further, they said, "retirement-related decisions are very
challenging to get right." Social Security tax and benefit
provisions are complicated and may involve a series of
calculations that are not clear or easy to understand.

Their brochure emphasized three benefits of delaying retirement.
Here are edited excerpts that explain these benefits.

1. You may live longer than you
think. According to the National Center for Health
Statistics, out of all 65-year-olds in America today, about 1 in
4 will live to age 90. For the average 65-year-old couple living
in America today, you can double the odds that at least one will
live to age 90. With many people living into their 90s, savings
often need to last a long time after retirement.

2. Postponing your retirement typically means more money
for a more comfortable retirement.Working longer will
help you put away more money for retirement. If you work a few
more years, you'll not only add to your existing savings, but
you'll avoid spending the money you've already saved in the
meantime.

Social Security benefits generally go up the longer you wait to
claim them, up until age 70. For each year you postpone claiming,
your retired worker benefits increase by about 8 percent of the
amount you'd get at age 62. For instance, a worker who would get
$1,000 in monthly retired worker benefits if he claimed at age 62
could expect about $1,330 in benefits by claiming at age 66. But
if the worker postponed claiming until age 70, he could expect
about $1,760 in monthly benefits. In addition to the increase
from delayed claiming, working a few more years generally raises
your Social Security benefits because most people's benefits
depend on their work history.

3. It pays to work, even while you're receiving Social
Security benefits. Some people who claim benefits
at age 62 stop working between ages 62 and 66 because they fear
they will lose their benefits. In truth, if your benefits are
reduced from working, the money is not actually lost. Instead,
the reduction is returned to you later in the form of increased
benefits.

If you do claim before your full retirement age, your monthly
benefits will be reduced if you earn more than a certain
threshold amount per year. The threshold is now $15,120. Once you
reach your full retirement age, your benefits are never reduced,
no matter how much you earn.

If your benefits were ever lowered from working, they are
recalculated to a higher amount when you reach full retirement
age – meaning the total benefits you can expect to receive over
your lifetime are not really cut, even if they might be
temporarily reduced.